Mongolia remains a developing country that faces challenges in building its export revenues while at the same time diversifying its economy away from mineral resource dependence.
As things stand, a worryingly large part of its economy is dependent on exporting minerals to China. However, Mongolia’s giant neighbour does not just need coal and metals, it is also a net food importer, struggling to feed the world’s second-largest population. As part of that, China has a relentless demand for meat. And with Mongolia boasting a staggering 71.1mn head of livestock, vastly outnumbering its human population of 3.3mn, the potential for meat exports amounts to an obvious way to augment the country’s income.
According to Mongolia’s National Statistics Office (NSO), agriculture accounted for 13.1% of the country’s GDP in 2022. Selling more animal products to China helped to expand agricultural exports by 22.6% y/y. Mongolia’s 2023 meat market has an estimated worth of $1.148bn and the market is expected to grow by 13.71% annually over the next five years. This works out to $335.20 per person, a welcome supplement in a country where the average income is less than $5,000 per year.
Unlike coal or metals exports, where much of the revenue goes to large mining companies, meat exports directly benefit the everyday lives of herding families, which comprise around a quarter of Mongolia’s population.
Typically, herders primarily derive their income from two sources: meat and cashmere. The income source varies depending on the specific Soum (administrative division) within the country. In areas where goats are relatively scarce, meat takes precedence as the primary income generator. Conversely, regions with abundant horses provide herders with opportunities to profit from producing airag, a fermented mare's milk, although airag exports rare.
Cashmere production at a Gobi Corporation factory in Ulaanbaatar (Credit: Brucke-Osteuropa, cc, public domain).
Moreover, families with substantial cattle holdings have the option to sell milk and dairy products, although the profit margins are often slim, dissuading many families from doing so. But these products also present their best opportunity to participate in Mongolia’s export market.
Historically, meat has been the cornerstone of the Mongolian diet. Herding families also eat a great deal of dairy and, to a lesser extent, flour-based foods, along with occasional small portions of rice. However, the consumption of fruits and vegetables remains exceptionally rare in their dietary habits. And while fruits, vegetables, bread, rice, and potatoes have increased in popularity in the cities, meat is still the staple. Consequently, city people are very sensitive to changes in the price of meat.
Between 2017 and 2019, Mongolian meat exports surged significantly. By 2020, Ulaanbaatar, Mongolia's capital, faced shortages in meat supply, driving prices to exorbitant levels beyond the means of many low-income families. To ensure meat remained affordable on the domestic market, the government implemented a meat export quota system. This system allocated quotas to meat exporting companies, limiting the volume of meat each could consign abroad. Additionally, the government initiated a programme to sell a restricted quantity of stockpiled meat, often at prices up to 40% below market rates.
Nevertheless, despite these measures, over the past three years, the upswing in meat exports has contributed to meat price inflation, at times surging to levels exceeding 20%. This has hurt domestic consumers, who find that they need more money to feed their families. Meanwhile, the quotas have negatively impacted the livelihoods of herders.
In China, the price of beef hovers between $7.4 and $10.4 per kilogram, while in Mongolia, it stands at a lower range of $4.6 to $5.35 per kilogram. This represents a significant price difference, ranging from approximately 60% to nearly 100%. Consequently, herders' incomes are nearly halved by the export quota.
Furthermore, the nation is witnessing a decline in export revenues, exacerbating its trade deficit with China. Also, as the export of cashmere remains more lucrative, and is not constrained by the quota, herders are increasingly turning to goat farming, contributing to the desertification of the grasslands. Over the last few years, the number of cashmere goats has increased from 13mn in 2010 to 27mn.
Goats are often considered to have a greater potential for causing damage to grazing land compared to sheep, horses and cows. The latter animals graze, eating the grass down to the soil. Goats, by contrast, browse, meaning that they eat everything including shrubs, bushes and even tree saplings. What’s more, when goats eat, they rip the vegetation out of the ground, tearing it to the base. This leads to the depletion of vegetation, soil erosion and desertification.
As per the United Nations Development Programme (UNDP), approximately 70% of Mongolia's grasslands have experienced some degree of damage due to overgrazing, primarily attributed to the rising population of animals, notably goats.
The government finds itself faced by a difficult dilemma. Allowing unrestricted meat exports can result in elevated domestic meat prices, causing hardship for Mongolian households. Conversely, implementing export quotas helps control domestic prices to some extent. The quotas, however, also reduce the income of herders, while encouraging the expansion of goat herding for cashmere production, exacerbating the issue of desertification in the steppes.